Private Limited Company: the best structure for raising money. Not always the best for running a business.
80% of the businesses that incorporate a Private Limited Company don't need one. The 20% that do absolutely need one — and there is no substitute. Here is how to know which you are.
The four things that matter
Where this structure actually goes wrong.
Incorporation — Companies Act 2013, SPICe+ on MCA21
A Private Limited Company is incorporated under the Companies Act 2013 (s.2(68)) via the SPICe+ form on the MCA21 portal. The process bundles PAN, TAN, DIN, GSTIN, ESIC, EPFO, and Professional Tax registration in one form. Minimum shareholders: 2 (maximum 200 for a Pvt Ltd). Minimum directors: 2 (at least 1 must be a resident Indian). No minimum paid-up capital since the Companies Amendment Act 2015. Authorized capital: ₹1L typical for most startups. Government fee: ₹5,000-₹15,000 depending on authorized capital.
s.2(68) · no minimum capital · SPICe+ bundles 7 registrations · 2 directors minimum
MCA21 compliance calendar — the ongoing cost
A Pvt Ltd company has statutory annual filings regardless of activity: Board Meetings (minimum 4 per year, at intervals not exceeding 120 days), Annual General Meeting (within 6 months of financial year end), MGT-7 (Annual Return — due 60 days after AGM), AOC-4 (Financial Statements — due 30 days after AGM), DIR-3 KYC for all directors. Penalty for late MGT-7: ₹100/day. For a non-operating company, this compliance cost runs ₹15,000-₹30,000 per year. For an operating company with a statutory audit: ₹50,000-₹2L per year minimum.
4 board meetings/year · MGT-7 + AOC-4 · ₹100/day penalty · CA audit mandatory
Startup tax — 80-IAC, 56(2)(viib) angel tax (post-FA 2024)
DPIIT-recognised startups (turnover <₹100cr, incorporated <10 years) can claim 100% deduction u/s 80-IAC for 3 of the first 10 years, subject to approval. Angel tax u/s 56(2)(viib) — which taxed premium received from investors above Fair Market Value — was abolished by Finance Act 2024 for all investors (domestic and foreign). Startups are now free to price rounds at negotiated valuations without 56(2)(viib) concern. Corporate tax rate for new companies: 22% u/s 115BAA (no exemptions) or 25% (turnover <₹400cr, standard deductions retained).
s.80-IAC 100% deduction · 56(2)(viib) angel tax ABOLISHED (FA 2024) · 22%/25% rate
ESOP — the competitive advantage
A Private Limited Company can grant Employee Stock Option Plans (ESOPs) governed by the Companies (Share Capital and Debentures) Rules 2014. ESOPs have a minimum 1-year vesting period. Startups (DPIIT-recognised) can defer ESOP perquisite tax at exercise — tax is due at the earliest of: sale of shares, 5 years from allotment, or leaving employment. This makes early-stage ESOPs genuinely valuable to employees. LLPs cannot issue ESOPs; partnership firms cannot issue ESOPs. If talent acquisition is a growth strategy, Pvt Ltd is the only entity that gives you this tool.
Min 1-year vesting · DPIIT startup ESOP tax deferral · only Pvt Ltd can issue ESOPs
Brutally honest
Where it wins. Where it hurts.
- ✓You are raising external equity (angels, VCs, accelerators) — investors require shares; there is no alternative.
- ✓You need to hire with ESOPs — the ESOP regime is Companies Act only.
- ✓22%/25% corporate tax rate — lower than the 30% flat rate on LLP/firm income.
- ✗You are a 2-person consulting practice or agency under ₹50L revenue with no funding plans — the compliance cost exceeds the benefit. Use an LLP.
- ✗You are a solo professional (CA, lawyer, doctor) — a sole proprietorship or partnership is simpler and the compliance overhead buys you nothing.
- ✗Statutory audit is mandatory every year under s.139 regardless of revenue — the annual floor is ₹50K-₹2L in CA fees.
Startups raising external equity, product companies hiring with ESOPs, and any business where limited liability plus institutional credibility with large corporates pays for the compliance overhead.
Bootstrapped consultants, freelancers, small agencies under ₹50L revenue, or anyone whose real goal is "lowest compliance cost" — LLP or proprietorship wins that game.
What we actually do
Five tracks, start to finish.
- 01Private Limited incorporationOne-time
SPICe+ end-to-end: PAN, TAN, DIN, GST, DPIIT recognition.
- 02Annual ROC complianceAnnual
Board minutes, MGT-7, AOC-4, DIR-3 KYC.
- 03Statutory auditAnnual
CA audit under Companies Act s.139.
- 04ESOP plan drafting and complianceOne-time + ongoing
Plan structure, board resolution, MCA filings, employee communication.
- 05Fundraising compliancePer round
PAS-3 share allotment, convertible note structuring, FEMA filings.
Common questions
Statute-cited answers.
What is the minimum share capital required for a Private Limited Company?+
Zero — there is no minimum paid-up capital for a Private Limited Company since the Companies Amendment Act 2015. The only requirement is that the company has an Authorized Capital (the maximum shares it can issue) stated in the Memorandum of Association. Most incorporations use ₹1 lakh authorized capital, which costs ₹5,000 in government stamp duty. Paid-up capital (what shareholders have actually contributed) can be ₹1 or ₹10 — this is often irrelevant for startups that raise at high valuations via convertible notes or SAFE agreements before issuing priced equity.
My co-founder and I want to give ourselves equity. How does that work in a Pvt Ltd?+
At incorporation via SPICe+, you specify the initial shareholders and their shareholding percentage. Each shareholder is issued shares at face value (usually ₹10 per share). For example: 50,000 shares each at ₹10 = ₹5L total paid-up. No cash needs to change hands for founder shares at incorporation — but the company's books must show the investment (typically founders pay ₹10/share as consideration). Subsequent equity dilution (angel round, seed round) is done via allotment of new shares at negotiated price, with PAS-3 filing on MCA. A Shareholders' Agreement governs founder rights, vesting, and exit — this is a contractual document, not an MCA filing.
Angel tax was abolished — does that mean we can raise at any valuation?+
Practically, yes — the Finance Act 2024 removed s.56(2)(viib) entirely for all classes of investors (domestic and foreign). There is no longer a statutory Fair Market Value ceiling on what investors pay for shares in a private company. Founders and investors negotiate valuation freely. However: practical limits remain. FEMA regulations apply for foreign investment (reporting requirements, sectoral caps, pricing guidelines for FDI) — for resident investor rounds, there are no pricing constraints post-FA 2024. Book your fundraising advisors, not your tax lawyers, for pricing discussions.
What does an annual compliance cycle for a Pvt Ltd actually cost?+
For a funded startup with a statutory audit: ₹1.5L-₹3L per year for CA fees (audit + ROC filings + income tax). Government fees for ROC filings: ₹1,000-₹5,000 depending on delays. Board meeting costs are internal. For a non-operating shell company (no revenue, minimal activity): ₹20,000-₹40,000 per year. The largest cost component is the statutory audit — required for every Pvt Ltd, every year, regardless of revenue. This is the primary reason to not incorporate a Pvt Ltd unless you need one.
Can we convert our Pvt Ltd to an LLP to reduce compliance?+
Yes — the Companies Act 2013 (s.366) and LLP Act allow conversion from Pvt Ltd to LLP via Form 18 on MCA21. Requirements: no existing listed securities, no deposits from public, all shareholders consent. Key consequence: an LLP cannot raise equity investment post-conversion — the conversion is usually a one-way door for businesses that have decided not to pursue institutional funding. Tax consideration: conversion from Pvt Ltd to LLP may be treated as a transfer for capital gains purposes (the firm "acquires" the company's assets) — CBDT has issued rulings on this; get a tax opinion before converting.
Incorporate your Private Limited Company — SPICe+ filed in 7 working days.
SPICe+ end-to-end with PAN/TAN/GST/DIN bundled, plus the post-incorporation calendar so the first MGT-7 and AOC-4 never slip.